Avoiding Accidental Franchise Creation Under The NJFPA

A decision from the New Jersey Appellate Division offers timely and practical guidance for franchisors, manufacturers, and suppliers focused on managing and protecting distribution and brand relationships. In affirming that a terminated retailer of custom outdoor kitchens was not operating as a “franchisee” of an outdoor grill manufacturer, the court held that the New Jersey Franchise Practices Act (NJFPA), an important statute that governs all aspects of franchise relationships, did not govern the termination at issue. The takeaway is straightforward but important: when the parties’ intent is to create or avoid a franchise relationship, that intent needs to be reflected clearly and consistently in the written agreements and the structure of the commercial arrangement. Otherwise, businesses can find themselves litigating statutory protections under the NJFPA that they never expected to trigger.

The Core Issue: Was a Franchise Relationship Created?

In N.A.R., Inc. v. E. Outdoor Furnishings, 480 N.J. Super. 553, 329 A.3d 1116 (Super. Ct. App. Div. 2025), the defendant, Eastern Outdoor Furnishings, had been selling AMD Direct’s outdoor grills and other products under a wholesale distributorship agreement beginning in 2010. In 2019, AMD terminated the arrangement in favor of an Eastern Outdoor competitor. Eastern Outdoor then alleged that AMD’s termination of its distributorship made it infeasible to continue purchasing AMD grills and meet customer orders.

Eastern Outdoor contended that a franchise relationship can be created under the NJFPA even in the absence of a specific “written agreement” between the parties, so long as there is proof of:

1. a written arrangement granting the use of a “license” such as a trademark, trade name, or service name; and
2. a “community of interest” in the marketing of the goods or services. The grill manufacturer argued that without a written agreement between the parties, no franchise relationship can be created, and accordingly, the protections of the NJFPA were not implicated.

The trial court granted summary judgment in favor of AMD since Eastern Outdoor could not prove the existence of a specific written agreement between the parties.

The Appellate Division’s Analysis

The Appellate Division agreed with Eastern Outdoor’s argument in that the NJFPA’s use of the term “written arrangement” should be understood to mean that a series of documents exchanged by the parties can suffice to create a franchise under New Jersey law. However, the court explained that Eastern Outdoor still needed to prove: 1) a written arrangement between the parties; 2) within that written arrangement, that AMD had granted Eastern Outdoor “a license to use” its intellectual property; and 3) the written arrangement reflected a “community of interest” between the parties.

Eastern Outdoor argued that emails, webpages, and catalogs describing Eastern Outdoor as a “partner” and the “point of contact” or “distributor” for AMD should be enough to conclude that AMD had effectively granted Eastern Outdoor the right to use its trade names and trademarks. Eastern Outdoor also argued that invoices and emails referring to AMD and Eastern Outdoor as “trusted partners” should show that a license was granted.

However, the court concluded that while Eastern Outdoor had indeed made use of AMD’s trademarks while selling as a wholesale distributor, trademark use alone does not establish a franchise relationship. Since AMD had never granted a license in writing to use the marks, Eastern Outdoor failed to satisfy the court’s second prong of the test of a valid franchise relationship. The court also noted that AMD had never sought nor exerted control over Eastern Outdoor’s marketing and sales of AMD grills.

 Key Takeaways From The Court’s Ruling

• Manufacturers, suppliers, and other business owners can unintentionally create franchise relationships in New Jersey under the NJFPA. Distributor relationships must be carefully structured to prevent franchise protection claims.
• If trademarks or trade names are used by the distributor, ensure that written evidence clearly and explicitly either grants a license to those rights, if a franchise relationship is desired, or explicitly refrains from granting a license to use the marks if a franchise relationship is not desired.
• Informal references to “distributors,” “partners,” or “points of contact,” should align with the intended relationship, since such references can become evidence in legal disputes.
• Suppliers and manufacturers must be aware that controlling or influencing the distributor’s marketing or sales can be construed as evidence of a franchise relationship.
• If a company intends to create a franchise relationship, clear and transparent agreements granting trademark rights or other intellectual property rights are essential for compliance with the NJFPA and other similar state franchise laws.

Conclusion

This Appellate Division decision underscores the necessity of proper legal drafting and clearly defined relationships with business partners. Suppliers and manufacturers, among other business owners, should be aware of specific legal risks and unintended issues that New Jersey’s franchise laws pose to the unaware. Further, the importance of this decision and these issues are not isolated to New Jersey. Two dozen states have a franchise relationship law, which underscores the importance of understanding a business owner’s relationships in each jurisdiction it conducts business in.